Alex Cohen: eMarketer recently released a study that projects “the Internet to account for 15.1% of total media spending in 2010 and over 20% by 2014 [with] search accounting for $12.4 billion, or nearly half, of overall advertising budgets this year.”

As budgets shift from offline to online channels, they’re moving disproportionately to PPC (aka pay-per-click or paid search). It’s often cited as having the highest ROI after a company’s email list (which is obviously productive, since it’s comprised of people you’ve sold to before).

PPC’s place in the marketing mix really depends on your business model. If you’re a brand advertiser, lead generator or retailer, then paid search should probably be one of your biggest acquisition channels. If you’re a media company, then social media and SEO will likely dominate.

PPC is efficient for many businesses. In many cases, you can manage paid search to marginal ROI; that is, continuing to scale your investment as long as you get a return. If you allocate budget to a fixed dollar amount for cash flow or other reasons, I’d say it should be the majority of your online advertising spend. PPC can also perform more profitably than offline channels, such as print.

However, everyone should diversify their acquisition channels and their budgets among acquisition, conversion and retention. You never want all of your eggs in one basket.

What are some of the trends in paid search that marketers need to know about?

Alex Cohen: Paid search has radically transformed in the past year. It’s becoming more complicated and competitive. It’s all driven by a trend I call The Rise of Universal Paid Search.

The biggest difference is that paid search is now littered with new ad formats. Simple text ads are no longer the only ads shown next to unpaid (organic) search results.

For example, some retailers can now display product images in paid search results with Product Listing Ads and Product Extensions.

What are some of the barriers that keep people from improving their PPC ROI?

Alex Cohen: To really run PPC efficiently, you need the three P’s of Paid Search: People, Process, Platform:

People — There’s no substitute for talented PPC managers, which, unfortunately, are in short supply. Great paid-search practitioners are naturally analytical and data driven. But, they also understand the broader scope of how PPC fits in the organizational goals and can tackle problems creatively.

Process — In many cases, the barriers to higher ROI in PPC have less to do with the people managing PPC and more to do with the culture of the company. Does your executive management not understand or value PPC? Are you unable to get promotion details from marketing? PPC doesn’t exist in a silo. It requires buy-in and coordination with marketing, IT and management.

Platform — PPC is a heavily data-driven channel. Like any data-driven channel, there are things that software can do faster and more accurately than people can do. At some spend level in PPC, every company is going to hit a wall where they realize either they have to hire more people to keep up with the workload or buy a tool(s).

First, it’s a metric that Google uses to summarize their judgment of relevance — whether the keyword you’re bidding on and the text ad you’re offering are relevant to the searcher’s query.

Second, it’s Google’s yield management algorithm. Google is essentially a publisher and their goal is to maximize their profit per page view (in their case, search results page). Quality Score helps them promote ads that are more likely to get clicked on at the highest price.

There is a lot of information and many myths about Quality Score floating around the internet. More than anything, it’s about clickthrough rate. That makes sense when you think about it, because that’s the metric that benefits Google the most. If you want to improve your clickthrough rate, start by testing your text ads.

Explain the correlation between PPC, SEO and Social. How do you see the three working together?

Alex Cohen: There are a lot of studies showing the lift when you run integrated PPC and SEO campaigns. That makes natural sense when you think about it. It’s not a question of “which one,” but “which one when.” You can jump into PPC more quickly and scale it, but there are high ongoing costs. SEO is less expensive over time, but there are high initial, fixed expenses and it takes longer to get traction.

I think of online marketing in two large buckets: Discovery and Satisfaction. Social Media and SEO can do a great job of helping people find things they didn’t even know about and do research. PPC does a great job of satisfying demand that’s already been created.

When it comes to paid search, it’s important to try to understand the thought process of the customer. What are your top web analytics metrics that provides this insight? Can you provide tips on improving these metrics?

Alex Cohen: No number can teach you about the thought process of your customer. That requires research, such as surveys, usability studies and focus groups.

First and foremost, measure has to be about outcomes: donations, net profit, new blog subscribers, whatever purpose your website exists to serve.

That said, I think one of the best ways to understand the intent of a search is to analyze their search query, the actual phrase they typed into the search engine. People tend to think of paid search through the lens of keywords, the phrases you bid on. But, keywords exist only to attract search queries.

Just because you bought the keyword “pet food” doesn’t mean everyone who clicked on your ad had typed “pet food.” Some may have typed “organic pet food” or “make your own pet food” or “order wholesale pet food online.” Do you sell each of those products? Do they have the same value? By clearly understanding what people are looking for, you can fine tune which clicks you’re willing to pay for, how much you’re willing to pay for them and where you send them on your site. That helps you understand your prospects better and optimize accordingly. Unfortunately, there’s no single metric that does that. Besides, averages lie.

How do you see ClickEquations evolving within the next couple years now that companies and brands have so much focus on social media?

Alex Cohen: That’s a really good question. I don’t think you’ll talk to a vendor in our space who doesn’t believe that the world is becoming search-like. What I’m referring to is increased levels of transparency, control and bidding and more real-time decision making for advertising. There are a lot of channels that are starting to mimic search. Display is becoming like that, largely because of Google. Facebook ads, Twitter ads, whatever they happen to look like, there are many channels that are starting to mimic the search model.

The same level of challenges–visibility, prioritization, simplification, automation–are going to exist in all of those channels. That level of data will offer opportunities for us to do better marketing mix modeling and to be able to say which channels deserve credit and where we should spend our money to be most effective. Those are kind of macro trends that are cutting across this industry and across vendors that anyone who’s playing in this space would be smart to pay attention to.

A big thank you to Alex Cohen for taking the time to participate in Marketwire’s Ask the Expert interview series.

Are you a PR pro? Are you savvy in social media? Are you in-the-know in investor relations? Are you a media professional who’s been transformed by the digital revolution? We’d love to interview you for our Ask the Expert series! The Ask the Expert interview series is Marketwire’s way of delving into the minds of industry leaders and experts, asking them the most salient and pertinent questions that affect PR, IR and marketing communications professionals. Please contact Nick Shin (nshin [at] marketwire [dot] com) for consideration.